Dow still headed for 18,000 so get into stocks now

Commentary: 4 big reasons to invest on your own to increase profits

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, stay bullish, advises the “Wizard of Wharton,” finance professor Jeremy Siegel, author of the perennial best-seller, “Stocks for the Long Run.” Why? The Dow is heading for 18,000 in 2014, maybe 18,500. Siegel’s been all over the airways in recent weeks with his message of hope for the markets.

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No bubble. His main concern? Getting the jittery retail investor back into the action. Now. Don’t get left out, again, like last year.

Take advantage of the 2014 bull. So far Siegel says investors are “tiptoeing in, but when you look at the flows into the equity funds, it’s not there ... We have to bring them much more in until we get to the top of a bull market.” Yes, he’s cheerleading a bull market.

He predicts 10% to 15% growth in the market by year-end 2014. Is Siegel’s bullish enthusiasm solid advice for “jittery investors” to stop “tiptoeing” and get in this new bull market or a bit of irrational exuberance? He’s betting on the bull.

Stay bullish, while slowly climbing the proverbial wall of worry

Siegel knows bull markets never go up in a straight line. “Bull markets climb the wall of worry.” Like the frog in the well. Two up, one back. Statisticians also tell us markets tend to drop when a new Fed chairman comes in. And this new one’s committed to more tapering. There are other headwinds — China, terrorists, emerging markets — but a Wall Street Journal headline is beaming: “Economy shows signs of gearing up.”

“Stay bullish” is the mantra for 2014. So ask yourself, if you’re an optimist riding this bull market, what is the secret to maximizing the 10-15% returns, putting the most in your bank?

Simple. You can capture most of 2014’s 10-15% returns by doing it all by yourself. Seriously, you don’t need any help. Remember, research proves that you’ll have more left if you stay out of active trading, avoid actively managed funds and invest yourself with a well-diversified portfolio of low-cost, no-load index funds. Four reasons. Here are the details:

Reason 1: Investment advisers charge too much, but add nothing

Do it yourself? Yes, that’s another mantra, from Princeton professor Burton Malkiel, a former governor of the Amex, a member of the Council of Economic Advisers and author of the classic “A Random Walk Down Wall Street.” He told Journal readers just last year: “You’re paying too much for investment advice,” and it’s not increasing your returns.

His solution? First, fire your adviser. In fact, that’s been his mantra for a long time. A couple decades of increasing investment fees hasn’t increased Main Street returns one iota. In fact ,higher fees have actually reduced returns for America’s 95 million investors.

Check the numbers Malkiel tells his Journal readers: “From 1980 to 2006, the U.S. financial-services sector grew from 4.9% to 8.3% of GDP. A substantial share of that increase represented increases in asset-management fees.” Advisers’ fees jumped “substantially as a percentage of assets managed,” although research tells us “investors have received no benefit from this increase in expense ratios.”

An increase in “fees could be justified if it reflected increasing returns for investors from active management, or if it improved the efficiency of the market.” But Malkiel says “neither of these arguments holds.” Why? “Because actively managed funds ... have consistently underperformed index funds, by roughly the differential in fees charged.”

In short, “high fees charged for active management cannot be justified.” As he put it in his original “Random Walk:: “A blindfolded chimpanzee throwing darts at the stock pages can select individual stocks as well as the experts.” In fact, his “dart-throwing chimp” theory was actually tested in the 1990s. We wrote about it before the 2000 dot-com crash.

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